In our larger explorations of the law, we’ve examined many prevailing trends–from product liability and identity theft to auto recalls and personal injury law. One aspect that we haven’t trained our focus on is bankruptcy, which despite its status as a major part of the law and of the life of many citizens, is still largely misunderstood. With some guidance, however, it becomes quite a bit more clear, and can be understood for what it is: namely, another means by which the law protects consumers when they might need it most.
You’ve probably heard of companies or people declaring bankruptcy when they can’t pay their debts. Often these are folks–celebrities or large corporations–who appear to have been extremely wealthy. Part of what is so difficult to grasp about bankruptcy is just this ironic quality–the fact that it pertains just as much to those with lots of assets as it does to those with very few.
In a nutshell, bankruptcy is a procedure whereby a court agrees to protect a business or consumer so that they can be helped to get rid of their debts, pay off their creditors, and move on. This usually necessitates proof that the individual is “good for it,” so to speak–either willing to have property and other assets liquidated and resold to pay for debts, or in agreement with a plan that will allow you to pay some or all of your debts back within a few years’ time.
There are several different types of bankruptcy out there (you’ve probably heard of “Chapter 7,” “13,” or maybe “11,” which are among the most common), and these procedures vary slightly in the qualifications they impose on those seeking protection, as well as on the procedure for how they manage to settle debt. In general, however, the procedures come down to either “liquidation” (the aforementioned process of selling off assets to finance payback) or “reorganization” (meaning the debtor is able to keep his or her property but will have to agree to a plan that is hammered out to ensure payback within three to five years).
It’s true that bankruptcy law can be said to live in the deeper waters of the legal world–that is, it’s a little more intricate and complex than most laymen can grasp. In other words, it generally pays to have a professional by one’s side when seeking bankruptcy protection. Still, just because it is a complicated procedure does not mean it’s not useful, or even altruistic in nature: in fact, the very purpose of bankruptcy is to enable a struggling citizen to get out from under exceptionally heavy debts, after other options have failed. In this way, it is a hugely important component of the way we are able to maintain a financial future, and should be considered carefully, sure, but also freely.